STATS ChipPAC

STATS ChipPAC: Jiangsu Changjiang Electronics Technology (JCET) is making a pre-conditional voluntary offer to acquire all of STATS for US$780m or $0.466/share. The preconditions include: 1) Internal restructuring to transfer all its shares in its Taiwan subsidiaries to a new Singapore subsidiary (NewCo), as these are not within the scope of the offer. 2) Capital distribution of US$15m cash and all its shares in NewCo to shareholders, who can elect to receive the distribution fully in cash (~US4.05¢/share) or NewCo shares. Note that NewCo will not be listed on SGX or any other stock exchange. 3) Non-renounceable rights offer of US$200m perpetual securities to repay debts and strengthen its financial position. Unless there is a competing bid, JCET does not intend to revise the offer price. If the privatization goes through, JCET aims to increase their testing capabilities, plus gain access to STATS’ global customer base with this acquisition. The acquisition is also expected to boost JCET’s economies of scale, given the additional capacity. That said, JCET does not intend to make major changes to STATS’ business operations nor its management team. JCET is the largest electronics packaging player in China, and is listed on the Shanghai Stock Exchange. It reported over US$830m of net revenues in 2013, and has five manufacturing facilities in Jiangsu and Anhui provinces. Loss-making STATS ChipPAC is currently valued at 0.86x P/B, while JCET is trading at 2.9x P/B and 48x forward P/E. The street has 8 Buys and 1 Hold on JCET with a TP of Rmb15.